South Korea’s central bank has announced its first-ever half-percentage-point rate increase, joining the aggressive policy tightening by the U.S. Federal Reserve and other central banks to tackle high inflation. Analysts forecast more rate increases down the road.
The Bank of Korea raised its benchmark seven-day repurchase rate by 50 basis points — rather than its usual 25 basis points — to 2.25% on Wednesday, increasing the rate for a third consecutive meeting and its sixth rate increase since August 2021.
Twenty of 24 analysts surveyed by The Wall Street Journal forecast the 0.5 percentage-point rate increase while the remaining four expected a quarter percentage-point increase. They all expect the bank to keep ratcheting up borrowing costs in the coming months.
South Korea was the first major developed economy in Asia to start raising rates last year to tame inflation, but soaring prices are still a challenge.
The country’s headline consumer inflation rate was 6.0% in June — the highest since November 1998 at the height of the Asian financial crisis. The bank expects inflation to beat its earlier projection of 4.5% for the full year of 2022.
South Korea is also under pressure to respond to the Fed’s aggressive policy tightening and the weaker won against the greenback, as higher U.S. rates could risk a flight of foreign capital.